4 Ways to Recession-Proof Your Business

Read Time: 10 min

First-hand tips on ensuring your small business survives and thrives

It’s no secret that COVID has had a devastating impact on the economy. Small business owners, in particular, have faced catastrophic consequences. Here’s a scary fact: COVID-19 is responsible for the permanent closure of 76,000 small businesses in New York. Most will likely never reopen. That’s nearly one in three.

To take it even further, women, people of color, and, moreover, women of color, are even harder hit by the pandemic. New research tells us that “business owners from these segments of the population suffered greater losses because they tended to be in industries most battered by the pandemic, such as construction, restaurants, hospitality, and transportation, the report explained.”

While economic instability affects us all, as primary caretakers, working women are forced to bear the brunt of it, given the lack of accessible and affordable childcare, instability in the workforce, and uncertainty in children’s schooling.

As a woman of color and an entrepreneur, one who has experienced first-hand the struggle to stay afloat during a recession, this is deeply personal. When the 2008 financial crisis hit, what followed was probably the most challenging year of my life. Not only was my startup struggling, but it even rippled into my personal life, causing a strain on my marriage.

Since then, I’ve committed to never be in that position again. With each venture I’ve embarked upon, I’ve built contingency plans and safety nets to ensure that regardless, I would stay afloat financially and reduce the potential impact on my business and personal life.

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Women are already incredibly undervalued and underestimated in society and in business — the pandemic has only exacerbated that problem. With that said, with a spotlight on this critical issue, now may be the moment for real, systemic change.

Now is also the moment for small business owners, particularly WOC business owners, to prepare for whatever may come next. While most businesses face hardship and insecurity during times like these, some do not only stay afloat but flourish.

Here’s a 4-step guide to help you become one of them:

As with any roadmap, there are no one-size-fits-all model. The best we can do now as entrepreneurs is share what we’ve done.

Preparation and strategy are based on context and industry, but I believe it’s helpful to hear different perspectives to get us started.

1. Be prepared — create safety nets (financial and beyond)

No one expects a turn in the economy like the one we’re facing today. Still, small business owners, in particular, must plan ahead. Any minor economic change will impact you directly and quickly. With that said, there are ways to dampen this impact.

A contingency plan is one of them. What happens if the struggling economy slows down your business? Do you have something to turn to when your core product or service is no longer in high demand? Or if your sales slow — or even completely halt? Have you built a financial buffer that will keep you in business for at least a short period of time?

A contingency plan I always have in place for each of my businesses is to have a minimum of 6 - 10 months of financial reserves. Keeping focused on accurate cash flow is a critical step in planning ahead in all circumstances, particularly during a recession.

Furthermore, fine-tuning your financial literacy will help you get ahead of your competitors in a shaky economy. Some things you can do to be proactive are: create risk assessment models to accurately predict how your business may be impacted, track your spending, and even carefully audit your bank or credit union (some may have specific advantages that may save you thousands of dollars per year based on bank location, fees, and online account management options). All of the above will allow you to be on top of the financial health of your business.

I also keep an action plan handy for goals to accomplish or new verticals to explore when normal business is interrupted. That way, you are ready to hit the ground running if the need for a temporary pivot arises.

Over the years, I’ve also learned how helpful it can be to maintain an “about-to-be acquired” mindset.

“If you were acquired by Apple today, what are five things they would notice about your business or do with your business?” Truth be told, I had never thought this way before. Not from the acquisition perspective, at least. It forced me to further hone in on what makes my businesses distinct and memorable. And has even helped me nail down brand messaging and positioning. In turn, it’s allowed me to more clearly communicate my business to my clients and customers.

2. Learn to adapt — operationalize and innovate

If anything, COVID-19 has shown us that the businesses able to adapt to significant economic and market changes are the businesses that survive through difficult times.

One way of adapting is to become more efficient as a company when faced with obstacles in the operational sense. Particularly during the current crisis and the rapid shift to work-from-home culture, it’s crucial to overcome geographical and physical barriers.

For me, applications like Zoom, Google Meet, and Slack have been vital to running eight businesses from one centralized location.

Most companies learned the hard way and were forced into these operational changes, but you can be proactive and put these structures in place beforehand.

For example, are your employees equipped to communicate effectively virtually? Have you downloaded any required software that might get you there? Or have you onboarded your employees on how to use said software?

Putting these systems in place will help avoid chaos and allow your teams to work as effectively and efficiently as possible.

As someone who moves through life and business with a glass-half-full mindset, without ignoring the clear turmoil, I’m choosing to believe the landscape is ripe with growth opportunity. Another way to ensure your business is adaptable is through innovation and recognition of said growth opportunity. While it may seem counterintuitive to innovate during an economic crisis, it’s actually just the right moment to do so.

Over the last seven months, we’ve seen companies, regardless of size, industry, or product, take enormous strategy pivots, enter new verticals, and even new markets entirely.

**McKinsey:** **Innovation in a crisis: Why it is more critical than ever**

“The economic slowdown caused by COVID-19 has been historic...However, the pandemic is having precisely the opposite effect when it comes to innovation. In fact, companies, universities, governments, and individuals the world over have shown they can pivot rapidly, take significant risks and innovate in unexpected ways.”

We’re still only a few months into the pandemic, yet robots are already routinely disinfecting our cities, cooking our food, and delivering packages. The widespread use of smart devices in medicine has arrived, with a range of sensors monitoring patients and collecting data. Meanwhile, human-AI collaboration tools have leaped off the pages of product roadmaps and are being used by scientists and businesses alike to address the virus.

Many companies, particularly small businesses, have innovated during these times by assessing their capabilities to respond to the market shifts and meet consumer demand. Take Baggu, founded and led by Emily Sugihara, for example. With access to textile workers and clear roots in the industry, they decided to make masks one of their key products — offering the category significant real estate on their main e-commerce website, real estate that no other product shares. While this was likely never in their business strategy, this adaptation matched consumer demand and maintained a cash flow. It was a win-win. And they are, of course, not the only ones to do it.

Many distilleries and perfume producers, like LVMH, have turned to producing hand sanitizer. Distilleries have even brought sales and product tastings virtual. And 3D printers have turned to creating PPE. Restaurants all over the world have turned their spaces upside down to operate as take-out windows. They’ve also adopted new technologies like QR codes to avoid multi-personal contact with menus. Lauren Rivard, CEO and Founder of Picnic Collective, has successfully taken advantage of the times and made all picnic deliveries and experiences contactless and socially distanced. The opportunities are truly endless.

While these may seem like simple changes, they are signs of adaptability and resilience and ultimately determine whether a business can survive and thrive during a crisis. Have you scoped out your industry or space to see how leaders are innovating and pivoting? At the end of this blog post, I’m dropping a few of my favorite links and resources.

3. Shifting from customer growth to community cultivation

It’s always tempting to invest in marketing to grow your consumer base, expand your brand reach, or acquire new users. At the end of the day, what leader wouldn’t want that? While we should never lose sight of that goal, we also have to recognize the importance of investing in our existing base.

A guiding principle in this strategy is something called the Pareto Principle, or 80/20 Rule. Named after an Italian economist, Pareto found that “80% of Italy’s land was owned by 20% of the population.” How does that relate to your small business? These numbers actually carry over to consumer habits and markets — on average, 80% of a business’ revenue comes from 20% of its customers.

In my own experience, this makes so much sense. Over time, I’ve realized that what keeps my business most stable is customer and client loyalty. It’s the folks who come back time and time again that allow me to feel secure in my bottom line and innovate simultaneously. With that said, how we value this loyal base and market to them specifically is just as, if not more, important than acquiring and growing our base, particularly during times of crisis.

A people-and-empathy-first culture is essential for your business regardless of industry. For context, think of how some local restaurants are keeping their doors open during COVID-19. As consumers are currently looking for ways to contribute to and support the businesses they care most about and maintain normalcy in their everyday lives, the consumer-first practice shows its incredible value. Whether it’s creating a safe space for your consumers to gather, doing more storytelling on Instagram, or providing low-cost touch-points that show appreciation, this is the moment to get creative and remember what’s at the heart of your business.

4. Play the long game

It’s an age-old psychological story and study — as humans, we are incredibly more attracted by instant gratification rather than long-term goals and strategy. It’s only natural. When it comes to ensuring your business can stay afloat; however, this mindset can be dangerous. The stories we’re told of overnight successes are inspiring and motivating, but how can we learn from them? What do overnight success and instant gratification teach you as a founder, business owner, or leader? How does it prepare you for the bumps down the road?

As entrepreneurs, we’re continually looking for ways to signal financial success — whether through our online presence or upsizing our home. Sometimes the desire to signal success too soon can even be driven by the need to prove to others that you’ve made it. I quickly learned this is a mind trap that entrepreneurs must avoid. I often think back to when my husband and I were first getting our footing professionally. Avoiding these temptations, however loud they may have been, allowed for our long-term success and stability. It’s something we’ve never regretted.

While instant gratification is sexy, the long-game is infinitely more rewarding.

Final Thoughts

As a small business owner, your willingness to proactively prepare, adapt, get creative, and seek new growth opportunities will be what sets you apart during times of crisis.

COVID-19 has hit small business owners hard and WOC-owned small businesses even harder. Here’s a list of resources I’ve compiled that can also help you stay afloat: